This article is also published in my linkedin: https://www.linkedin.com/pulse/wbtc-bitcoin-killer-after-collapse-ftx-3ac-jacky-huang/
What is BITGO?
BITGO was founded in 2013 by Mike Belshe, who was impressed by the Bitcoin technology and emerging crypto market. Today, Bitgo is the leading company in digital asset security, custody, and liquidity, serving more than 1,500 institutional clients in 50+ countries.
What is wBTC?
Bitcoin has its own network and ecosystem. It was originally not connected to the Ethereum ecosystem. Wrapped Bitcoin (wBTC) was launched by Bitgo in January 2019 ; it is an Ethereum-network token that is backed 1:1 by Bitcoin. It allows users to interact with different Ethereum Dapps and the DEF system.
In short, wBTC is the mirror of BTC in Ethereum network, accounting for 83.27% of total BTC on the Ethereum network.
Connection between Bitgo and Alameda Research
Alameda Research and FTX has been filed bankruptcy. According to Bitgo's official website, BitGo "remains safe as the custodian for WBTC and has no exposure to Alameda / FTX. Not all custody is created equal". It seems that Bitgo has been facing a lot of challenges from the public.
However, according to Messari Dashboard: wBTC Supply in Dune Analytics, wBTC's total supply today is 210,045, and 101746.1 wBTC have been minted by Alameda Research, and 12449.2 has been minted by Three Arrows Capital (3AC), which comprise 48.44% and 5.93% of the total supply, respectively.
If the data is correct, BITGO has a very huge exposure to Alameda Research and 3AC. 101,746.1 wBTC are minted and 29435.3 are burned, even if we calculate the market value of the difference in wBTC(72,310.8) at the current price of wBTC is US$16,927.74, it could be US$ 1.2 billion ! Assume that BTC: wBTC is 1:1, BTC's current market cap is 325.54 billion, and the wBTC of Alameda Research could contribute to 0.3686% of all the Bitcoin supply! On the other hand, Three Arrows Capital has minted 12449.2 wBTC and burned 4671.4 wBTC, the difference is 7777.8 wBTC, which is US$ 131.66 million in market value.
Mints/Burns for Top 10 wBTC Merchants in Messari Dashboard: wBTC Supply
Minting and burning of wBTC
In short, Clients deposit BTC and mint wBTC; merchants burn wBTC to redeem BTC.
According to
Kraken's guide, Clients must go through a process that is handled by merchants and custodians in order to deposit BTC and mint wBTC. After the client submits a request, the custodian will mint the required number of wBTC. The user can then trade his or her bitcoin for the newly minted wBTC by sending bitcoin to the custodian in exchange.
In order to redeem BTC for wBTC, merchants initiate a burn transaction and inform the custodians. The custodians will then send the matching amount of BTC to the merchant's bitcoin address. Users then use their wBTC to buy bitcoins from sellers, who burn the coins they received..The custodians will then send the matching amount of BTC to the merchant's bitcoin address. Users then use their wBTC to buy bitcoins from sellers, who burn the coins they received.
The risk of BITGO
Since Alameda Research still owns 72,310.8 wBTC, and 3AC has 7777.8 wBTC. Both of the company filed bankruptcy. The public may afraid that if both of the companies burn wBTC to redeem BTC, and then dumped into the market, BTC's market depth will drop sharply.
However, according to wBTC's internal audit and On-chain Validation, the current supply of wBTC is 200,044.7123 (which matches the number of Messari's research in Dune), and 203,060.1796 BTC are in custody. Assume that the number is legit, BTC to wBTC is 1:1, and both Alameda Research and 3AC redeem BTC. Although BITGO would be deeply affected by it, they still have enough BTC for clients to redeem. The problem is that BITGO's balance sheet is not disclosed to the public and therefore we are not sure about its financial situation.
Whether wBTC will have a deep market impact on Bitcoin depends on the results of FTX and Three Arrows Capital's bankruptcy, and it's worth attention from the public. However, according to wBTC's internal audit and on-chain validation, the current supply of wBTC is 200,044.7123 (which matches the number of Messari's research in Dune), and 203,060.1796 BTC are in custody. Assume that the number is legit, BTC to wBTC is 1:1, and both Alameda Research and 3AC redeem BTC. Although BITGO would be deeply affected by it, they still have enough BTC for clients to redeem. The problem is that BITGO's balance sheet is not disclosed to the public, so we are not sure about its financial situation.
The public should pay attention to whether wBTC will have a significant market impact on bitcoin based on the outcomes of FTX and Three Arrows Capital's bankruptcy.
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